Taxing Energy Useprovides the first systematic, comparative analysis of the structure and level of energy taxes in the 34 OECD member countries. It sets out how tax rates vary between different types of fuel and different uses of fuel for each country. The information is also summarised in graphical form.

The report calculates what statutory tax rates on these diverse fuels imply in terms of taxation per unit of energy and per unit of carbon dioxide (CO2) emissions. It shows the wide variations in these effective tax rates across countries, and details how rates also vary widely within countries between different types of fuel (diesel, natural gas, coal, etc.), even when they are used for similar purposes. For example:

On average, the effective tax rate in terms of carbon emissions on diesel for road use is 37% lower than the comparable rate on gasoline; the rate in terms of energy content is 32% lower.

In heating and industrial uses, the average effective tax rate in carbon terms on oil products is EUR24 per tonne of CO2, compared with EUR13 per tonne for natural gas; the average rate on coal is only EUR5 per tonne, despite its significant negative environmental impacts.

Fuel used in agriculture, fishing and forestry is often exempt from tax.

This wide range of tax rates - when measured in terms of carbon emissions - results in wide differences in the tax disincentives to emit.Since CO2 has broadly the same impact on atmospheric greenhouse gas concentrations (and thus climate change) however and wherever it is emitted, these differences underline the fragmentation in current international efforts to mitigate climate change.

"Variations in effective tax rates on energy use, and the low levels of taxation on fuels with significant environmental impacts, suggest important opportunities for countries to reform their energy tax systems and achieve environmental goals more cost-effectively," said Pascal Saint-Amans, Director of the OECD's Centre for Tax Policy and Administration. "Greater use of environmentally-related taxes could also be an economically efficient means of raising revenues to improve public finances at a time of fiscal crisis.”

For more information, journalists should contact Pascal Saint-Amans, Director of the OECD’s Centre for Tax Policy and Administration (CTPA) at tel.: (+33-1) 45 24 91 08.

Germany reduced its total amount of estimated support for fossil-fuel production by more than half, to about EUR 2 billion (0.1% of GDP) in 2011, reflecting a decision to phase out support to the hard coal industry by 2018.

Mexico has introduced a new and more efficient cash-transfer scheme to help poor households cover their energy needs, as well as a pilot programme to replace electricity subsidies for pumping irrigation water with direct cash transfers in some states, thereby removing the price distortion that has led to significant over-exploitation of groundwater.

The United States has proposed a federal budget for FY2013 that would eliminate a number of tax preferences benefitting fossil fuels, which could increase government revenues by more than USD 23 billion over the 2013-17 period.

“This Inventory increases transparency on the nature and scale of fossil-fuel support measures, and provides policy makers with a starting point for identifying options for reform,” said Ken Ash, OECD Trade and Agriculture Director. “With recent levels of support estimated in excess of USD 55 billion annually, phasing out inefficient measures would help rein in budget deficits and free up funds to support other policy priorities, while still reducing greenhouse-gas emissions.”

Governments support fossil-fuel production through market intervention, direct transfers of funds, undercharging of government-supplied goods or assets and tax concessions. Consumption of fossil fuels is supported by mechanisms including price controls, rebate schemes and tax relief. As tax treatment varies considerably across countries, the value of this support, which includes tax expenditures, is not internationally comparable.

Petroleum products benefitted from around two-thirds of the value of all support measures identified in the Inventory, with the remainder equally split between coal and natural gas.

OECD analysis identifies common strategies among governments that have successfully reduced fossil-fuel and electricity subsidies:

Increase the availability and transparency of data on support.

Provide better-targeted and transparent compensatory measures for economic restructuring or poverty alleviation to smooth the path for fossil-fuel subsidy reform.

Integrate reforms to fossil-fuel subsidies in a package that includes broader structural reforms, where possible.

Ensure public trust in the reform agenda through broad communication strategies, appropriate timing of subsidy removal, and implementation of compensatory social policies.

Data underlying this publication, as well as more work by OECD and the International Energy Agency (IEA) on fossil-fuel subsidies and support, can be found at www.oecd.org/iea-oecd-ffss.

For further information, journalists are invited to contact Jehan Sauvage in the OECD’s Trade and Agriculture Directorate by e-mail: jehan.sauvage@oecd.org or by telephone: + (33 1) 45 24 95 16.